Whether Ah Chong has a contract

The issue of this scenario is whether or not Ah Chong has a contract with these three parties (i.e. Muthu, Ali and John) for the sale of his car that advertised in the local newspaper.

2) Relevant Laws:

Stone (2009) defined an offer “as an indication by offeror that he or she is prepared to contract with one or more others, on certain terms, which are fixed, or capable of being fixed, at the time the offer is made". In addition, Duxbury (1991) discussed that an offer may be defined as a statement of willingness to contract on specified terms made with the intention that, if accepted by the offeree, it shall become a binding contract. Adams (2010) provided that the offeree, by acceptance, agrees to be bound by all the terms of the offer. However, both offer and acceptance are stated in Section 2(a) & Section 2(b) CA1950 respectively.

Generally, a contract is binding by law when the communication of its acceptance is complete as far as Section 4 CA1950 is concerned. In addition, postal rule mentioned that communication of acceptance is complete and effective when the letter is posted and placed in the hands of the relevant postal authorities. The relevant case of postal rule: Ignatius vs. Bell (1913) 2 FMSLR 115, held that communication of the acceptance is complete as against the proposer, when the letter is posted. A contract between both offeror and offeree is effective until the communication of acceptance has been completed, communication of acceptance is necessary to contracts and it is typically show the consent made by the offeree. (Lee & Detta 2009)

Section 6 of CA1950, 6(a) by the communication of notice; 6(b) by the lapse of the time prescribed in the proposal for its acceptance; 6(c) by the failure of the acceptor to fulfill a condition precedent to acceptance; or 6(d) by the death of mental disorder of the proposer, if the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance (Lee & Detta 2009).

However, the offeree must accept the exact terms proposed by the offeror unconditionally that is without introducing any new terms which the offeror has not had the opportunity to consider (Duxbury 1991). Section 7(a) CA1950 stated that acceptance must be absolute and unqualified. Section 7(b) CA1950 prescribed that acceptance must be expressed in some usual and reasonable manner, unless the proposer prescribes the manner in which it’s to be accepted.

3) Relevant Cases:

According to Lee & Detta (2009), the fact of Coelho vs. Public Services Commission (1964) MLJ 12, HC reads as follows: The applicant, a Health Inspector under the Town Board, Tanjong Malim applied for the post of Assistant Passport Officer in the Federation of Malaya Government Oversea Missions advertised in the Malay Mail newspaper dated 19 February 1957. Consequently, the applicant was informed that he was accepted and after undergoing a period of training he was posted to the Immigration Office, KL. The applicant now moved the court for an order of certiorari to quash the decision of the respondents on the grounds of error in law, want of jurisdiction and failure to observe the principles of natural justice. The court held that the advertisement was an invitation to qualified to apply and the resulting applications were offers. An advertisement is an attempt to induce offer.

The case of Felthouse vs. Bindley (1862) 11 CBNS 689 argued that silent may not amount to acceptance, the fact of this case was, Felthouse wrote to his nephew offering to buy his horse, adding ‘If I hear no more about him I shall consider the horse mine at £40’. His nephew intended to sell the horse to his uncle but did not reply to the letter. He told Bindley, who was auctioning his farm, not to include the horse in the action as it was already sold. Bindley sold the horse by mistake and Felthouse tried to sue Bindley for conversion of his property. The issue was whether the offer could have been accepted by the offeror stating that silence by the offeree would be deemed to be consent, however, the court held that the nephew’s acceptance had not been communicated to the uncle, the horse did not therefore belong to him. (Lee & Detta, 2009)

On the other hand, an offer may lapses after a reasonable time and it is not merely because it must be implied in the offer but because failure to accept within a reasonable time implies rejection by the offeree. For instance, an offer will cease automatically if not accepted within any specified time limit; or else it will lapse if not accepted within a reasonable time (Adams, 2010). In the case of Ramsgate Victoria Hotel Co. Ltd vs. Montefiore (1866) LR 1 Exch 109, Montefiore applied for shares on 8 June but he was not told until 23 November that his offer had been accepted and that the shares had been allotted to him and that the balance owing on the shares was now due. Montefiore refused to pay and the company threatened to sue, alleging breach of contract. The issue was whether the offer lapsed through passage of time. The court held that the offer to purchase shares had not been accepted within a reasonable time and the offer had therefore lapsed, hence, there was no contract created between the 2 parties. (Lee & Detta, 2009)

Based on the case of Hyde vs. Wrench (1840) 49 ER 132 which stated in Lee & Detta (2009), the fact was discussed as follows: The defendant offered to sell his estate to the plaintiff on 6 June for £1000. On 8 June, in reply, the plaintiff made a counter-proposal to purchase at £950. When the defendant refused to accept this offer on 27 June, the plaintiff wrote again that he was prepared to pay the original sum demanded. The count held that no contract existed between them. The plaintiff had rejected the original proposal on 8 June so that he was no longer capable of accepting it later. Besides the aforementioned requirement that acceptance must be unconditional, it is also essential that acceptance must be made within a reasonable time.

4) Application

There are generally two offerors (i.e. Muthu and John) and one offeree (i.e. Ali) involved in the question and three of them believed that they have contract with Ah Chong. Firstly, for Muthu’s case, Muthu met Ah Chong personally and the communication of his offer/proposal is complete which stated in Section 4(1) CA1950 In addition, Muthu also requested duration for one week time as to consult her wife who will be coming back from Indonesia to Malaysia in one week time. In applying the principal of the case of Victoria Hotel Co. Ltd vs. Montefiore (1866) LR 1 Exch 109, an offer may lapse in a reasonable time on the ground of failure to accept within a reasonable time implies rejection by the offeree. The principal given from the case of Felthouse vs. Bindley (1862) 11 CBNS 689 said that silent is not amount to acceptance. As a result, Ah Chong has the rights to accept subsequent offers without inform Muthu, and therefore, no contract exists between them.

Looking into Ali’s case, Ali has been given an offer by Ah Chong. But then Ali replied, on condition that the car must process new coat of paintwork. In general, an offer must be absolute and unqualified as far as Section 7(a) CA1950 is concerned. In applying the principal provided from the case of Hyde vs. Wrench (1840) 49 ER 132, the court held that no contract existed between them due to the counter offer has destroyed the original offer. Anyway, Ah Chong can just ignore the offer which he sent to Ali since the counter offer made by Ali has destroyed the original one, and therefore, no contract exists between when adopting the principal of Hyde vs. Wrench (1840) 49 ER 132.

Finally, the second offeror was John, who posted his acceptance to Ah Chong directly to buy the car. In fact, whether this is an offer or merely an invitation to treat depends on the intention of the party. In applying the principal of Coelho vs. Public Services Commission (1964) MLJ 12, HC, the court held that the advertisement was an invitation to qualified to apply and the resulting applications were offers. Thus, Ah Chong can send his acceptance of the offer made by John on the ground that John did not prohibit any law in Malaysia, unlike Muthu and Ali. A legal contract exists between John and Ah Chong unless Ah Chong has decided to accept John’s offer after consideration.

5) Conclusion

All of the three parties believe that they have contract with Ah Chong for the sale of car. With the illustrations that shown above, a conclusion is being justified for them respectively:

i) Muthu (the first offeror)

Muthu, a potential offeror who is entitle to get the car, but unfortunately, he has to consult his wife who will back in Malaysia in one week time. However, this has offence Section 6(b) CA1950 in which an offer lapsed after a reasonable time by adopted the principal in the case of Victoria Hotel Co. Ltd vs. Montefiore (1866) LR 1 Exch 109. As a conclusion, no contract exists between Muthu and Ah Chong.

ii) Ali (the offeree)

Even though Ali is the offeree who signified his consent to the offeror under Section 2(b) CA1950, but he put on condition that the car must be given a new coat of paintwork, it looks like negotiating, which is consider as a counter-offer similar to the case of Hyde vs. Wrench (1840) 49 ER 132. The court held that no contract exists between them since the counter offer destroyed the original offer as a result of counter offer. At the meantime, he has offence Section 7(a) CA1950, that acceptance must be absolute and unqualified. As a result, no contract exists between Ali and Ah Chong.

iii) John (the second offeror)

John, an expatriate who posted his offer to Ah Chong believe that he has a contract with Ah Chong. Ah Chong can reply his acceptance to John in accordance with Section 4(2)(b) CA1950, communication of acceptance is complete as against the offeree. There is, a literary legal contract exists between John and Ah Chong provided that Ah Chong decided to sell the car to John. In fact, Ah Chong can adopt the principal of Coelho vs. Public Services Commission (1964) MLJ 12, HC to treat it as an invitation to treat if he wish to do it.

6) Reference

Adams, A., (2010), Law for Business Students – 6th Edition, Pearson Education Limited, London

Duxbury, R. (1991), Contract in a Nutshell – 2nd Edition, Sweet & Maxwell, London

Lee, M.P. and Detta, I.J., (2009), Business Law, Oxford University Press, Selangor

Stone, R., (2009), The Modern Law of Contract – 8th Edition, Cavendish Publishing Limited, USA & Canada